Fed Watch – 1/2/2026

with lauren saidel-baker

Fed Dynamics Shift in 2026

This week on Fed Watch, ITR Economist and Speaker Lauren Saidel-Baker breaks down why inflation is becoming the Fed’s dominant concern as we enter 2026. She unpacks the latest Fed meeting minutes, growing dissent within the FOMC, and what a more hawkish voting lineup could mean for interest rate policy. Lauren also explores why the U.S. consumer remains resilient, how upcoming tax refunds could provide short-term support, and why now is the time for businesses to revisit pricing strategies as CPI pressures build. What risks should business leaders be watching most closely this year?

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Key Episode Takeaways

  • 0:13 – Fed minutes reveal rising dissent within the FOMC
  • 0:54 – Inflation versus labor market in the Fed’s dual mandate
  • 1:22 – Consumer resilience and what spending data is showing
  • 1:41 – Tax refunds and near-term support for demand
  • 2:00 – Changes in Fed voting members and rising hawkishness
  • 2:54 – Powell’s term ending and political pressure on the Fed
  • 3:22 – CPI outlook above 3% and implications for pricing strategy
It seems like members of the committee are looking a little bit more toward the inflation side of their dual mandate, rather than the labor market side of things. - Lauren Saidel-Baker Share on X
We here at ITR Economics are expecting CPI growth in excess of 3% this year. - Lauren Saidel-Baker Share on X

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker and thank you so much for joining me for this January 2nd edition of ITR Economics Fed Watch. Hope you had a great holiday season. Thanks for being back with us here in the new year.

I do want to look back just briefly to some late 2025 action. We did get those most recent Fed minutes released earlier this week. Not too surprising what came out of those, really more dissent happening amongst those members of the FOMC.

We got some movement within those minutes that even those members that did vote for the rate cut in December, a few of them did so with some hesitation. So on balance, it seems like members of the committee are looking a little bit more toward the inflation side of their dual mandate, starting to really watch those pricing pressures that we have been talking about here at ITR, rather than the labor market side of things.

Now, that balance is going to be very tricky. I think as this balance gets more fraught, we will see more divergence from various members. The labor market side, we’ve been talking about what numbers really are the gold standard anymore.

Some demographic pressures maybe are changing break-even job growth rates. But if we look at the consumer as a whole, broaden this from just the labor side of the mandate, we’re actually seeing the consumer hold up pretty well here in the U.S.

So recent Johnson Redbook data came out very supportive of our consumers’ financial stability, of their ability to be out there spending. And coming into 2026, we do have a little bit of good news with things like the OBBBA increased tax returns very likely to come this spring.

That estimate is about $1,000 per person. So again, this isn’t going to move the needle completely, but it could add just a little bit more juice to the consumer in the very near term. Let’s take another look as the calendar turns a page into what happens in 2026.

We also have a change in the makeup of the Fed’s voting members. So if you recall how the Federal Reserve is structured, those voting seats that are given to different regional Fed presidents. So if we take a step back and look at the breakdown of who is actually voting for interest rate policy, there are four rotating seats that change amongst the regional Fed presidents.

This year, of the incoming four individuals who are now gaining a vote, three of them have come out in the past, either hesitant about interest rate cuts or have outright said they would not have voted for a certain interest rate cut that happened in the near past.

So we are starting to see maybe a little bit more hawkishness amongst those existing members who are rotating into voting seats. But the political pressure that we’ve been watching for, that is going to come to a head within the first half of this year.

As you know, in May, Chair Powell’s term will end. We still don’t have a replacement candidate from President Trump, but it’s very likely that that individual will be of a more dovish bias than Powell has been.

We’ll see about potential other seats to come on the Fed as the year progresses. All told, there’s going to be a lot of movement. We will be following this very closely as the year goes forward. The thing we are watching the most right now is that inflation side of things.

Quick reminder, we are expecting CPI in excess of 3% this year. So if that means something for your own pricing strategy, please take this new year, new you, new pricing strategy as a time to act. So as we enter 2026, there will be a lot to look at.

Again, demographics likely keeping the labor market side of the equation relatively tight. We’ll be watching that balance, but it’s the inflation side that I personally have my eye on. As you know, we here at ITR Economics are expecting CPI growth in excess of 3% this year.

So if you don’t have your pricing strategy in place yet, new year, new you, new pricing strategy, now is certainly the time to act. We’ll be unpacking all of this and more as we proceed. We hope you’ll join us in 2026. Thanks so much for being with us here on Fed Watch.